1.

(a) Given Px = Rs 2, Py= Rs 1, income = Rs 12. Find how a consumer spends her income in order to maximize total utility.(b) Calculate TU receive by the consumer. Show that the equilibrium condition for the consumer are satisfied.

Answer»

(a) Consumer will spend 1st and 2nd rupe to buy 1st and 2nd units of Y. This will give total of U units. If the 1st two rupees were spent on 1st unit of X then 16 units would be received.

(b) TU = 93 units

(c) MUx/ Px = MUy/ Py subject to PxX + PyY = M

12/2 = 6/1…. subject to (2)(3) + (1) (6) = 12



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